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US Machine-to-Machine (M2M) Communications Markets

US Machine-to-Machine (M2M) Communications Markets

This Frost & Sullivan research service on the Machine-to-Machine (M2M) communications markets presents an analysis of the key market trends and opportunities in the connected machines space in the United States.

It amends and updates the 2012 study on the same topic and presents updated forecasts and other related Information on the key market trends and dynamics. The term “M2M” is quite broad as M2M connections can be used across the wireless and wireline domains, and connectivity for deployed endpoints can be provided via cellular/mobile, satellite, wireline/Internet, and other private and public telecommunication networks. Additionally, both short- and long-range access technologies can be leveraged to provide M2M connectivity. This report is focused on the cellular M2M connectivity space in the United States and identifies the market opportunity from a cellular-enabled connected devices perspective only. Throughout this study, the terms “M2M” and “cellular M2M”; “cellular” and “mobile”; “operators”, “mobile operators”, “cellular operators”, and “mobile network operators (MNOs)” are used interchangeably.

Key Market Definitions

M2M communication refers to digital communication between an endpoint and an enterprise’s backend system over cellular networks. A sensor-based tank monitoring system that monitors liquid in a storage tank and sends an automated message to a central monitoring station when the level of the liquid in the tank goes below a certain level is an example of automated M2M communication. An in-vehicle navigation system that communicates with the service provider’s backend, in response to specific commands of a human operator, to present the relevant information to the vehicle’s driver or passengers, is another example of M2M communication.

According to Numerex Corporation, M2M communications consists of using a device (for example, a sensor and a meter) to capture an event (for example, temperature, inventory level, location, or environment status), which is then relayed through a network (for example, wireless, wired or hybrid) to an application (software program), to translate the captured event into meaningful information (for example, there is a breach, corrosion requires attention, items need to be restocked, or an accident has occurred). This definition can be applied to both one-way and two-way communication scenarios where a device can be remotely monitored, information can be collected and analyzed, and the device itself can perform certain functions based on commands from the enterprise or the service provider’s backend.

Various “integrated” services, such as smartphone applications that can be used to monitor remote endpoints, are increasingly becoming available. Depending upon the system architecture, some of these applications may (or may not be) classified as M2M. An M2M application is one that sends data to an enterprise backend (i.e, facilitates data exchange between a remote asset and an enterprise backend). A Smartphone application that displays data about the state of a particular endpoint by plugging into that enterprise’s backend is not a true M2M communication system, even though it is indirectly communicating with the remote asset or the endpoint. Another criterion for defining M2M could be based on the level of “human involvement”. M2M communication services may refer to only those solutions that facilitate digital communication between remote or in-field enterprise endpoints and enterprise backend without human intervention.

Market Segmentation and Forecast Methodology

Frost & Sullivan has estimated the number of M2M connections across different industry segments and has used the average revenue per connected device/unit (ARPU) to establish the market potential. The overall opportunity in the M2M space is largely defined by the service revenues that accrue to the wireless service providers for providing connectivity to the endpoints. Depending upon the business model, mobile operators can also generate more revenue by providing additional service, support, and marketing and distribution services. For example, they could charge a premium in M2M by offering retail solutions (direct to consumers or enterprises); while they may primarily get data access revenue from providing wholesale M2M. In many cases, mobile operators may also charge a fixed minimum price for providing connectivity to M2M endpoints. Mobile operators can sell connectivity services directly to customers (i.e, minimal involvement), or they may also sell solutions through partners (i.e, maximum involvement) where connectivity is bundled along with the M2M solution. The pricing and revenue for mobile operators and M2M service providers depend upon multiple factors, including bandwidth consumed, application and cloud platform resources consumed, number of connections, and ultimately, the business model of the M2M customer.

Summary of Findings and Key Conclusions

Below are some key findings of this research.

  • All verticals continue to contribute to the market growth. However, in terms of connections, the Transportation and Telematics market (including fleet and asset tracking) and Utilities and Industrial market—particularly connected (or smart) utility meters—continue to grow at a faster pace than others. The Consumer market, which has been the growth driver for the US M2M communications industry for several years, is likely to remain strong over the forecast period, as well.
  • M2M is likely to remain a high-margin, low-cost, and low-ARPU business for mobile operators in the long run. This is particularly true for mobile operators that are heavily dependent on wholesale M2M mobile virtual network operators (MVNOs) that buy bandwidth at wholesale rates and build M2M solutions on top of that. In order to achieve the desired level of scale, automation, and service penetration, mobile operators have to invest in appropriate technical platforms and personnel. Once the initial challenges are addressed, it is only a matter of time before M2M becomes a highly profitable business for US mobile operators.
  • Overall, M2M deployments do not yet generate a large amount of data bandwidth. As a result, pure-play M2M data access revenue is relatively small when compared to total mobile data revenue. However, this is expected to change rapidly when Third-generation (3G) and Fourth-generation (4G) cellular networks start to become a common communication medium for M2M applications.
  • M2M application platforms are critical for the growth of the industry. These platforms help simplify M2M application development and ongoing management, and are likely to see strong adoption during the forecast period. The challenge for M2M cloud platform providers will be to generate increased revenue, in line with the strong growth of M2M data volumes (or transactions).
  • “Minimal” involvement, “moderate” involvement, and “close” involvement in direct sales to M2M customers are the three high-level go-to-market strategies of US mobile operators. It is extremely difficult for mobile operators to work on a one-to-one basis with smaller entities that want to leverage the power of mobility for their connected deployments. This is where dedicated M2M service providers come into the picture. By providing a highly focused set of offerings for M2M, these service providers are likely to emerge as the preferred choice for the small and medium business (SMB) segment.
  • The migration of M2M to 3G and 4G networks could happen sooner than initially expected. With AT&T, the present market leader in M2M communications, recently announcing its intention to shut down its slower second-generation (2G) networks over the next five years (by 2017), new M2M customers are likely to adopt high-speed wireless networks to ensure long-term continuity of their connected deployments. On the other hand, other mobile operators, such as Sprint and T-Mobile USA, which are likely to continue to run their 2G networks for a relatively longer period of time, could benefit from AT&T’s decision by providing cheaper 2G-based services for M2M.
  • M2M application development and management platforms, reporting and management interfaces, M2M test beds and innovation centers, cloud computing, secure M2M connectivity, professional services, industry vertical expertise and mobility experts, and integrated wired/wireless M2M services are likely to be the crucial differentiating factors for mobile operators and their partners in the long run in the US M2M communications markets. Long-term success in M2M communications will also depend on the operators’ ability to nurture, develop, and support their wholesale initiatives. Tier-1 mobile operators are also increasingly offering “branded” vertical M2M products in partnership with specialized solution providers. However, mobile operators have to be careful to not compete directly with M2M wholesale service providers.
  • A significant amount of data (or transactions) is expected to be generated by the millions of M2M endpoints that are likely to be connected over cellular networks. Storage, analysis, and interpretation of this massive amount of data could easily become a major industry challenge. The threat of network resources getting overwhelmed from this “big data” phenomenon is quite real. The problem will only get worse with time, unless the industry aggressively deploys the necessary storage and computing resources to address this issue. This makes it critical for mobile operators and their partners to provide appropriate platforms, software, and infrastructure components to help in M2M application development, deployment, and management.
  • The full impact of the proposed nationwide high-speed public safety network on M2M communications is still unclear. However, it is fair to assume that certain markets, such as Security and Safety, and Transportation and Telematics, could see growth in M2M connectivity due to deployments on this network. While this may or may not benefit commercial cellular operators in the United States, it will definitely benefit other industry participants, such as M2M application platform providers and M2M hardware vendors.

US Machine-to-Machine (M2M) Communications Markets

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